A short time ago, DataQuick reported on Southern California real estate sales for the month of April. Now two months into the spring selling season, sales have rebounded, but prices remain under pressure, holding about even from last month.
It's all about foreclosures now and how aggressively banks price their inventory. Almost 38 percent of the overall sales were the result of a foreclosure, up slightly from last month and up from only about 5 percent a year ago.
More than half of the homes sold in Riverside County were foreclosures, explaining much of what you see below as prices dipped 28 percent on a year-over-year basis for both Riverside and San Bernardino.
Price declines in our old stomping ground of Ventura County have pulled back a bit after having taking the lead down a few months ago.
Marshall "almost all if not all of those gains are here to stay" Prentice, President of DataQuick, had these comments on the April data:
Quite a few more buyers stepped off the sidelines last month to snap up homes at substantial discounts relative to the market's short-lived peak. It's no surprise, given the magnitude of the price declines in inland areas and the fact sales have been so amazingly low for so long. We continue to look for evidence of a sales bounce in the mid-priced and higher-end markets along the coast. If the higher conforming loan limits are making a difference in those areas it's certainly not a large one, at least not as of the end of April.
Sales levels are quite low compared to the boom years. The March-April rebound doesn't even rise to the levels of the January-February "doldrums" going back at least through 2003.
The sales and price data for the next few months should be quite interesting - how aggressive banks are in pricing their properties for sale and how willing buyers are to step in and take a chance.
In our new Northern California neighborhood, foreclosures that are priced aggressively sell very quickly.
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The mainstream financial media is, if anything, perplexing. During Larry Kudlow's show on CNBC last Wednesday where Barry Ritholtz was "thrown to the bulls", Larry had the following to say about the Wall Street Journal:
...on the front page of the Wall Street Journal which has been practically the gloomiest newspaper - not the editorial page, but the news part...
Another memory from last week came trickling back upon watching the CNBC
video, a video clip that stands as a stunning testament to just how bullish this one part of the mainstream financial media has been and will probably always be.
During our chat last week, Barry commented something to the effect of:
Remember that CNBC is not business news, it's entertainment.
The subject of market sentiment, CNBC, and the Wall Street Journal made something of a nexus this morning after sitting through the Kudlow segment following the reading of the Money & Investing section of the WSJ.
Two stories (both behind the subscription wall) stand out:
This Stock-Market Rally Is a Keeper ... or a Tease
By E.S. BROWNING
May 19, 2008; Page C1
...
People like Eric Bjorgen of Leuthold Group, a money-management and research firm in Minneapolis, are wondering whether this rally is something they can invest in for the medium term or just a bear-market bounce that will soon fade.
To figure that out, Mr. Bjorgen looked at 10 past stock recoveries. He wanted to know what kinds of stocks usually are strong when the market recovers from serious trouble, and whether those groups are leading today. He discovered some anomalies.
Over the past 60 years, market leaders at the start of lasting recoveries often were stocks tied to consumer spending: hotels, resorts, cruise lines, general-merchandise stores, banks, home builders. Investors were betting on a rebound in consumer spending.
This time, only a handful of those groups are leaders, including consumer-finance companies, home-furnishing stores and Internet retailers. More of the leaders are heavy-industry groups that usually rally late in bull markets, notably those tied to coal, steel, fertilizer, oil and industrial gases.
Mr. Bjorgen says he fears that investors are looking backward. They are showing confidence in the areas that were strong late in the past bull market because of the robust global economy.
And in the Ahead of the Tape column:
Stalwart P/E Shows Stocks Getting Pricey
May 19, 2008; Page C1
By MARK GONGLOFF
Stocks have had a nice run these past couple of months. The downside: They may no longer be a bargain.
...
One view of P/E offers a warm blanket to the bulls: The Standard & Poor's 500-stock index trades at 15 times forecast operating earnings this calendar year. But that's not much of a deal when compared with the 60-year average of about 12, according to various estimates.
And earnings forecasts for the remaining months of this year are probably optimistic, as they assume a quick and roaring recovery amid an economy barely scraping by. Lower those forecasts, and the forward P/E ratio rises.
Other takes on P/E lead to a still-more-bearish conclusion. When measured against the past 12 months' reported earnings, the S&P 500's P/E ratio jumps to about 21, above its 60-year average of roughly 16.
Entertainment versus solid financial reporting - perma-bulls versus gloomy pragmatism - an interesting contrast.
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Wow! Even Lawrence Yun, the Chief Economist for the National Association of Realtors, is getting on the "let's get the price declines over with" bandwagon.
In this fine LA Times report by Maura Reynolds, when asked about plunging home prices, the usually upbeat Yun noted, "Peak to trough, we'll be looking at 20% or even greater" and then continued with, "Because the prices are going down so fast, we'll be hitting the stabilization point sooner".
When you think about it, maybe it does make a lot of sense to encourage the downward move in asking prices - stubborn sellers certainly aren't going to wake up to this reality without the help of the real estate sales industry and six percent of something is a lot better than six percent of nothing.
The Times report covers all the bases on the growing realization that maybe it would be best if home prices were allowed to reach more reasonable levels sooner rather than later.
The hard truth is that the housing correction is turning out to be deeper and longer than nearly anyone anticipated. And that's bad news, not just for homeowners and would-be home buyers but for pretty much everyone.
With every month of lower home prices, homeowners see their net worth decline. Potential purchasers are paralyzed by a lack of financing and by the fear that if they buy before the market hits bottom, they will lose money too.
...
Thomas Lawler, a housing economist who runs a consulting firm in Leesburg, Va., noted that in the last housing price correction, which occurred in the early 1990s, it wound up taking prices seven years to drop 20%. Compared with that protracted slump and recovery, he thinks the current free fall in home prices is a good thing.
"Do you want a slow bleed?" Lawler asked. "Wouldn't it be nice to just get it over with? It might be that that's what we're seeing."
The latest DataQuick real estate sales figures for Southern California should be out in the next day or two.
Who knows what's in store for the month of April. Here's what it looked like as of March.
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Last week was very much of a whirlwind - one day quickly expiring and leading into the next without allowing sufficient time to reflect on what had happened.
Recollections of conversations now come drifting back after the pace has slowed and a normal schedule resumes.
Two such conversations were with my soon-to-be 80-year old father on the changes that have occurred over the generations with the younger crowd.
Seventy-some years ago he started working as a paper boy earning a whopping 5 cents per week. As was the custom during that era, one or two pennies went to his family and he kept the rest.
When I was a teenager, working part time, particularly during the summer months, was about the only way that one could afford to buy their own car (or at least make the required sizable contribution toward one) and fund other expenditures.
Today, teenagers come from eastern Europe by the thousands to work along the east coast every summer because many of the younger crowd couldn't be bothered with slaving away for minimum wage.
Times sure have changed.
Dad also takes particular pride in telling the story about how his son insisted on paying back money borrowed to finish up college twenty-some years ago. At first the elder Iacono refused the monthly remittances but the son insisted on making regular payments for more than five years.
When the story is told today, the listener usually stares in disbelief as freely flowing home equity money has helped to make expensive college educations seem a birthright.
Times sure have changed.
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While Robert Shiller is normally dead-on when it comes to most aspects of the nation's housing market mess, he makes one critical error in his Sunday op-ed piece in the New York Times.
Dr. Shiller noted, "No one is likely to starve or sleep on the streets as an immediate result of a foreclosure, and the authorities no longer dump a family’s furniture on the sidewalk when it happens. Nonetheless, there is deep trauma."
As noted in the comments section of the last post where a reader left this link to a CNN video report, that does not appear to be the case in Santa Barbara. Unless, of course, there is a meaningful distinction between "sleeping in your car" and "sleeping on the street".
Poor Barbara lost her job in the mortgage business and then lost her place to live. The 67-year old now sleeps in the back of her car in a "women's only" parking lot set up by the city of Santa Barbara and her kids worry.
While it was not clear whether Barbara or the other ladies were former homeowners, there must be at least a few foreclosure stories further south in Ontario where the homeless numbers are growing.
This LA Times report notes the efforts of the City of Ontario to reduce their "tent city" from over 400 to about 170 by allowing Ontario residents only. Surely, some former subprime borrowers populate these ranks.
Back to Dr. Shiller's NY Times piece:
Homeownership is fundamental part of a sense of belonging to a country. The psychologist William James wrote in 1890 that “a man’s Self is the sum total of all that he CAN call his, not only his body and his psychic powers, but his clothes and his house, his wife and children, his ancestors and friends, his reputation and works, his lands and horses, and yacht and bank account.”
Homeownership is thus an extension of self; if one owns a part of a country, one tends to feel at one with that country. Policy makers around the world have long known that, and hence have supported the growth of homeownership.
MAYBE that’s why President Bush’s “Ownership Society” theme had such resonance in his 2004 re-election campaign. People instinctively understand that homeownership conveys good feelings about belonging in our society, and that such feelings matter enormously, not only to our economic success but also to the pleasure we can take in it.
But we are now seeing the president’s Ownership Society plan operate in reverse. Already, the homeownership rate has fallen — from 69.1 percent in the first quarter of 2005 to 67.8 percent in the first quarter of 2008. That’s almost back to the 67.5 percent level where it stood when Mr. Bush took office in 2001. And it is likely to fall further.
The pain of this reverse movement could leave a psychological scar that will be with all of us for the rest of our lives.
It's funny (and now sad) that so many new homeowners in the last few years thought that they somehow "owned" the home they purchased when in reality all they really owned was a debt obligation that many really didn't understand.
ooo
This week's cartoon from The Economist:
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Things went off without a hitch yesterday at the Hard Assets Investment Conference. A link to the paper that was the subject of my talk now appears directly to the right -->>
I'll be without internet access for most of the rest of the week so little if anything will appear here until my return to California - it's time for a short break.
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Either make it stop or somebody please tell me how I can change my Thunderbird mail settings so I never have to look at this stuff again.
Locusts, I tell you.
It's as if a zombified subprime mortgage industry is descending like locusts onto the last part of the housing market that still has equity in it.
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The Associated Press reports that baby boomers are increasingly relying on new debt to make ends meet.
Based on the personal saving rate being close to zero for years now and, up until a short time ago, money flowing freely from home equity extraction, it's a good bet that things are not all that different now than a few years ago - it's just a different kind of debt these days:
The economic downturn is hitting roughly one in 10 middle-aged and older Americans especially hard, compelling them to borrow money for everyday living expenses and to seek help from family, friends or charities, according to a survey released Tuesday by the AARP.
In the telephone survey of 1,002 adults 45 and older, nearly four in 10 said they had helped a child pay bills or expenses. Among retirees, one-third said they'd helped their children pay bills. Eight percent said they'd helped a parent pay bills or expenses. The survey's margin of sampling error was plus or minus 3 percentage points.
One-third of survey participants said they stopped putting money into their 401(k) or retirement account and 14 percent said they had cut back on their medications.
"We have patients coming in fewer times," said registered nurse Tucky Franz of Salisbury, Md. "They'll cut back because of the copay."
The majority of baby boomers said they were finding it more difficult to pay for essentials and utilities, and six in 10 said they had cut back on eating out and entertainment.
That statistic on stopping contributions to 401k plans is pretty shocking - that's the kind of thing that it not easily undone once things return to "normal" (whatever that is).
The good news is that Wal-Mart sales are picking up - it seems that what money is being spent is being spent with a little less abandon.
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OK, truth be told, I haven't exactly been devouring the news over the last few days trying to keep abreast of financial market developments in order to write some witty or insightful commentary in what is usually an unsuccessful attempt at producing something that might be mildly entertaining.
Things will get slower here at the blog by midweek as I'll be completely disconnected from the internet for at least a day or two - maybe that's a good thing.
For some reason, after New York, I agreed to go to Atlantic City for a couple days and finding an internet connection is likely to be at the bottom of the list of things to do there.
After sitting through a number of presentations this morning, all of which were modestly informative (James Dines was his usual self) I trotted two blocks east of here to sit down with Barry Ritholtz for an hour or so.
After resolving all the world's financial problems, we set out to cure world hunger and eliminate all disease but, alas, we were unable to find any workable solutions for either.
We agreed to meet again at some unspecified time in the future to try again.
All the new work being done at The Big Picture and at Fusion IQ looks pretty neat and I think the two of us could have sat and talked for the rest of the afternoon, but we both had other things to attend to.
Upon returning to the hotel, I had the pleasure of meeting Al Korelin who will host the panel I'll be on tomorrow at 8:30 AM - "Causes and Consequences of the Credit Crisis".
It seemed like a good idea to get the whole "... and the name of your blog is what?" thing out of the way beforehand and we ended up having a pleasant chat along with Jay Taylor and Ben Johnson (see the Hard Assets Investment Conference speakers page for more on all of these folks.)
It was a pretty interesting afternoon meeting lots of great people.
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This LA Times report asks if underwater homeowners "walking away" from their homes (a.k.a "jingle mail") is a myth?
In response to questions from The Times, Bank of America spokesman Terry Francisco said the bank had seen indications that some homeowners were taking pains to keep their credit card accounts current at the expense of their mortgage balances, often by raiding their home equity lines to pay their cards, a reversal of traditional customary customer priorities.
But he said the bank did not have "firm figures" on how many homeowners were unnecessarily defaulting on their mortgages.
"We are working hard with our analytics to get at how much that is happening," Francisco said. Others suggest that it may be impossible to find out.
"How would you know what someone's true ability to pay would be?" asked Todd Sinai, an associate professor of real estate at the Wharton School of the University of Pennsylvania. "I'm not sure you could even come up with a definition."
At Fannie Mae, the government-chartered company that owns or guarantees billions of dollars in home mortgages, Senior Vice President Marianne Sullivan conceded that there was growing "folklore" about residential walkaways but said that the phenomenon was more likely connected to investors than people who live in their homes, or "owner-occupants."
"The vast majority of borrowers we find have been acting in good faith," she said. "If they get behind, they are interested in working with their lender."
This sounds a lot like the 2005-era talk of "Is there a housing bubble?" They interviewed the folks at YouWalkAway.com at the end of the article.
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Man, they sure use their car horns a lot around here. I bet half the people in California don't even know what their horn sounds like or where to push on the steering wheel if they wanted to find out.
Here in New York City, honking your horn seems to come as easily as exhaling.
The shot you see below is from my room - I'll venture outside shortly and announce my arrival to this fair city.
After taking a bus from Pennsylvania where I'm visiting relatives, I made the cardinal mistake when exiting the Port Authority Bus Terminal - I made eye contact with someone. I just had to look away and keep walking hoping they wouldn't follow - they didn't.
For those of you just tuning in, I'll be speaking on Tuesday morning here at the New York Hard Assets Conference at the Marriot Marquis Hotel in Times Square. I'll be on a panel at 8:30 AM - "Causes and Consequences of the Current Credit Crisis" and then at 10:30 AM I'll be making a presentation "Buy the Stocks? Or, Buy the Commodities?"
I'll probably post the paper here in PDF format sometime later this week.
Next month I'll be going to Long Beach to participate in another panel at the Hyatt Regency - more on that later.
ooo
This week's cartoon from The Economist:
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